Edit: Just read ahead and found out that it's the product of the # of units, the cash flow and the time. Nevermind, I understand now.
In Brandon Turner's book on rental property investing, he does a calculation that I don't quite understand. He says,
"The property is listed at $100,000, but we are able to buy it for $80,000. For
simplicity’s sake, we’ll say that the seller will pay our closing costs, which
means we are required to put down $16,000 for a 20% down payment. In
addition, we will spend $4,000 on minor repairs and improvements to satisfy the
standard of 10% appreciation during the first year.
Year One
Here is a summary of our portfolio after year one:
Our loan is for $63,500 (approximately).
Our value is at $110,000 (10% appreciation during year one).
Our cash flow saved (from cash flow) is $10,000. (Okay, technically $9,600.
I like easy math.)
Our total equity is $46,500.
Our total net worth is $56,500.
...
Year 2:
Nothing changes during year two. During this year, you simply manage your
property incredibly effectively. Cut expenses as much as possible; raise the rent
as much as possible. Run a well-oiled machine. By the end of year two, our
portfolio looks like this:
Our loan is for $63,000 (approximately).
Our value is at $113,300 (3% appreciation during year two).
Our total cash flow saved is $20,000.
Our total equity is $50,300.
Our total net worth is $70,300.
"
(chapter 2, under "Buying your first property")
Where does he get the cash flow saved of $9600 and $20000 from? Appreciate any insights, thanks!
